Agenda of Corporate and Strategic Committee

Hawke’s Bay Regional Council

Corporate and Strategic Committee

1 June 2022

Subject: Annual Plan 2022-2023 for adoption

Reason for Report

1. This item seeks a recommendation to Council to adopt the Annual Plan 2022-2023. Council needs to adopt the Annual Plan in accordance with the Local Government Act 2002 before it can set the rates for the 2022-2023 financial year.

Officers’ Recommendation

2. Staff recommend that the Committee reviews the information provided and resolves a recommendation that Council adopts the Annual Plan 2022-2023 as presented.

Background

3. Annual plans are prepared and adopted under section 95 of the Local Government Act 2002 (LGA). Council is required to produce an annual plan in the years between long term plans. Long term plans are reviewed and adopted every three years. The Annual Plan 2022-2023 is Year 2 of the Long Term Plan 2021-2031 (LTP). The LGA requires that an annual plan be adopted before the commencement of the year to which it relates.

4. An annual plan provides an opportunity for small adjustments or variances from the long term plan to reflect changes since the plan was adopted.

5. Under the LGA, consultation is only required if there is a “significant or material difference from the content of the long term plan” for that financial year. In other words, as long as budget adjustments do not significantly change total rates, rating impacts or levels of service then no consultation is required.

6. Council’s Significance and Engagement Policy is the primary tool to determine the significance of Regional Council decisions and give clarity on when to engage. As outlined in the policy, significant means that the issue, proposal, decision or other matter is judged by Council to have a high degree of importance. This is typically when the impact on the regional community or a large portion of the community, or where the financial consequences of a decision, are substantial.

Annual Plan 2022-2023 Approach

7. Councillors have been involved in several workshops around the development of this Annual Plan and were advised of the challenges and financial pressures faced.

8. Council made a resolution to adopt a no-consultation approach to the Annual Plan 2022-2023 at its meeting on 30 March 2022. Budgets have been worked hard to ensure the financial pressures within existing budgets have been accommodated within the 15% rates increase forecast for Year 2 of the LTP. Staff have assessed that there is no significant rating or levels of service impacts from proposed budget adjustments that would trigger the need to consult.

9. Every financial lever available has been pulled to remain within the total average rates increase of 15%. Ratepayers will be impacted differently based on the mix of general and targeted rates they pay.

10. Some adjustments of scale have been incorporated into the Annual Plan. These adjustments are not significant in terms of financial impact, nor do they alter levels of service. Some of these key adjustments are:

10.1. Economic Development – funding the new Economic Development Agency within the Regional Development Rate.

10.2. Possum Control – $300k p.a. for additional monitoring is reallocated from the existing Predator Free Hawke’s Bay budget. This is the proposed transitional approach to implement large-scale contracts for possum control on 1 July 2024, following consultation on the Long Term Plan 2024-2034.

10.3. Acceleration of the Right Tree Right Place Pilot.

10.4. Implementation of weed boat harvesting in the Karamū.

10.5. Ahuriri Regional Park – funding for project management brought forward to Year 2.

10.6. Decrease in Tūtira logging revenue forecast.

10.7. Increase in insurance premiums.

11. The community were informed of the Council’s approach to this Annual Plan with a media release issued on 20 March 2022.

12. Following Council adoption on 29 June 2022, another media release will be issued. This will be posted to social media and the Council website.

13. A two-page summary of the Annual Plan is also being prepared for publication in Hawke’s Bay Today.

14. There will be further coverage of the Annual Plan in the monthly Our Environment printed/digital community newsletter.

2022-2023 Annual Plan Budget

15. The impact of the changes included in the 2022-2023 Annual Plan budgets has resulted in:

15.1. A reduction in the 2022-2023 operating surplus of $3.2m (down from $7.5m to $4.3m) as a result of:

15.1.1. Council’s budgeted revenues are $0.5m higher at $81.7m (LTP $81.2m).

15.1.2. Council’s budgeted expenditure of $77.4m (LTP $73.7m) is $3.7m higher. A substantial portion of this is due to an accounting change in the way $1.4m of expenditure on information systems improvements are treated. New accounting standards require software costs, which were previously capitalised, to be treated as operating expenditure each year. The balance of the change is driven by the need to accommodate additional cost pressures within the budget.

15.1.3. Council will need to borrow more to fund operations, however, the total forecast debt at 30 June 2023 is similar to that forecast in the LTP ($104.1m in LTP vs $103.8m in AP) due to a lower opening debt figure.

16. Council is managing increasing cost pressures, including higher inflation, interest rates and a competitive employment and constrained contracting market. Council management will continue to actively work with budget holders during the year to ensure levels of service outlined in the LTP are delivered.

Financial Strategy as per 2021-31 LTP

17. The 2022-2023 Annual Plan is a continuation of the 2021-2031 LTP’s Financial Strategy. Council is borrowing to fund operational costs in the early years so that rate increases can be kept at a manageable and affordable level, while urgent environmental protection and enhancement work with inter-generational benefits is progressed.

18. As outlined in the LTP, Council considers this approach to be financially prudent as it balances the Council’s funding needs with the need to keep the level of rates affordable for ratepayers. As noted in the LTP, borrowing to fund operations in the first 5 years will require higher rate increase in future years (years 6 to 10 of the LTP).

19. Council continues to meet or exceed all benchmarks as set out in the LTP.

Fees and Charges

20. For each Annual Plan, fees and charges are updated to meet the required revenue budget for the new year. It is proposed to present the fees and charges for 2022-2023 in a single schedule separate to the Annual Plan document, but referred to within, and to make this available on the HBRC website. The draft Fees and Charges Schedule 2022-2023 is attached to this paper.

21. The policy for fees and charges is unchanged from what was set in the Long Term Plan 2021-2031. The fees and charges set for each activity are unchanged from 2021-2022 (year 1 of the Long Term Plan), with the exception of:

21.1. Hourly charge-out rates for staff involved in consent application and compliance monitoring activities, have been increased slightly based on modelling the fees required to meet the revenue target for income. The other staff charge-out rates have been updated based on benchmarking against the consent and compliance rates for similar roles, while taking internal costs and corporate overhead into consideration. A minimum charge-out rate has been set at $95 per hour.

21.2. The jet ski registration fee has been simplified to a single charge of $70 including GST for each registration, which includes the registration sticker.

21.3. The annual freshwater science charges have a slight increase of ~1% for discharge to land/water consents, and ~2-5% for watertake consents. This is based on modelling of the charges required to meet the 2022-2023 revenue target for Section 36 RMA income for water quality and quantity science and monitoring, and reflects the general inflationary cost lift in the budget for these activities.

Significance and Engagement Policy Assessment

22. Staff assessed the changes from what was proposed for Year 2 of the Long Term Plan 2021-2031 and advised Council there were no significant rating or levels of service impacts that would trigger the need to consult.

23. Council made a resolution to adopt a no-consultation approach at its meeting on 30 March 2022.

Climate Change Considerations

24. This year’s Annual Plan continues the step-change approach we set in motion in our 2018-2028 Long Term Plan Facing our Future, with an increased focus on climate change.

25. A number of our key strategic projects are working to help urgently meet the climate change challenge. These include Right Tree Right Place, the Regional Water Security Programme, future water use, reviewing and upgrading flood protection assets across the Tūtaekurī, Ngaruroro, Lower Tukituki and Clive rivers, gravel extraction in the Upper Tukituki Flood Control Scheme, on-demand public transport pilot, and the Erosion Control Scheme.

Decision Making Process

26. Council and its committees are required to make every decision in accordance with the requirements of the Local Government Act 2002 (the Act). Staff have assessed the requirements in relation to this item and have concluded:

26.1. The decision does not significantly alter the service provision or affect a strategic asset, nor is it inconsistent with an existing policy or plan.

26.2. The use of the special consultative procedure is not prescribed by legislation.

26.3. The decision is not significant under the criteria contained in Council’s adopted Significance and Engagement Policy.

26.4. The persons affected by this decision are ratepayers in the Hawke’s Bay region.

26.5. Given the nature and significance of the issue to be considered and decided, and also the persons likely to be affected by or have an interest in the decisions made, Council can exercise its discretion and make a decision without consulting directly with the community or others having an interest in the decision.

Recommendations

1. That the Corporate and Strategic Committee receives and considers the Annual Plan 2022-2023 for adoption staff report.

2. The Corporate and Strategic Committee recommends the Hawke’s Bay Regional Council:

2.1. Agrees that the decisions to be made are not significant under the criteria contained in Council’s adopted Significance and Engagement Policy, and that Council can exercise its discretion and make decisions on this issue without conferring directly with the community or persons likely to have an interest in the decision.

2.2. Adopts the Annual Plan 2022-2023 in accordance with the Local Government Act 2002, subject to any amendments agreed by the Corporate and Strategic Committee at its meeting on 1 June 2022.

2.3. Delegates to the Chief Financial Officer authority to make any required minor amendments or edits to the Annual Plan 2022-2023 prior to publishing.

Authored by:

Mandy Sharpe

Project Manager

Sarah Bell

Team Leader Strategy & Performance

Tim Chaplin

Senior Group Accountant

Desiree Cull

Strategy & Governance Manager

Amy Allan

Management Accountant

Ross Franklin

Finance Consultant

Approved by:

Chris Comber

Chief Financial Officer

James Palmer

Chief Executive

Attachment/s

1	2022-2023 Annual Plan		Under Separate Cover
2	HBRC Draft Fees and Charges Schedule 2022-2023		Under Separate Cover

Hawke’s Bay Regional Council

Corporate and Strategic Committee

1 June 2022

Subject: Regional Sector Shared Services Council Controlled Organisation

Reason for Report

1. This deliberations report provides the Corporate and Strategic Committee with information to assist it to make an informed decision on whether to recommend that Council participates in a Regional Sector Shared Services Council Controlled Organisation (RSSSCCO).

Officers’ Recommendations

2. Council officers recommend that Councillors consider the view expressed by the submission received in conjunction with the information in this report in making a decision on whether to recommend whether or not the Council participates in the proposed RSSSCCO.

Background

3. At the meeting of the Regional Council on 27 April 2022, Council agreed to consult with the public on participating in a Council Controlled Organisation (CCO) to support shared services and collaborative activities in the regional sector.

4. The Council:

4.1. agreed that the decisions to be made are in accordance with section 56 and 82 of the Local Government Act

4.2. agreed to participate in a Regional Sector Shared Services Council Controlled Organisation subject to consultation

4.3. agreed to the ‘streamlined’ public consultation process proposed.

Scope of the decision

5. Only two options were proposed during consultation, being:

5.1. To support Hawke’s Bay Regional Council participating in a regional sector shared services CCO.

5.2. To not support Hawke’s Bay Regional Council participating in a regional sector shared services CCO.

6. Council can only decide in favour of one of the two options as consulted on without requiring further consultation.

Consultation

7. Staff are confident that the consultation undertaken is compliant with the requirements under the Local Government Act 2002.

8. The consultation period, from 29 April to 15 May 2022 was supported by public notice in the newspaper, media release, social media, an email targeted to relevant organisations and content on the Regional Council’s website.

9. Submissions were invited through our online submission form and a downloadable form was also available on the Regional Council website.

10. HBRC’s Facebook social media channel sent 3 posts concerning this consultation, resulting in:

10.1. Individuals reached: 1,858

10.2. Post engagements: 43

10.3. Links clicked: 19.

11. The question asked was: “Do you support Hawke’s Bay Regional Council participating in a regional sector shared services council-controlled organisation?”

Submissions received

12. One submission was received giving a response of ‘don’t know’ to the proposal.

13. The online submission stated:

13.1. “Yet again a consultation document about the creation of a CCO has been put out for comment without a full explanation of what the CCO is intended to do. What 'shared services' are you intending to have delivered under the umbrella of this CCO? What 'projects' are you intending to have delivered under the umbrella of this CCO? Whilst I think I understand the intent of what you are trying to achieve, without knowing what 'shared services' and 'projects' that the proposed CCO will be tasked with it is difficult to agree or disagree with your proposal. Personally I have been advised that the implementation of IRIS is proving to be a dogs breakfast. Therefore, I have to wonder what other projects or services can be better provided by sharing them between the Regional Council sector when each council has their own way of doing things to reach the same outcomes. I find it ironic that our local Territorial Authorities arguing against the governments Three Waters proposal due to loss of community of interest yet it appears that HBRC is willing to do the same thing for yet undefined 'shared services' and 'projects'. Much like the comments I made around the Food East proposal this another fail for the content of your consultation document. I expect better.”

14. The submitter, Paul Bailey wished to be heard, and presented his submission to the 25 May 2022 Regional Council meeting.

15. The key themes in his submission have been summarised as:

15.1. Lack of information - on which to base support or not for joining

15.2. Past performance/results - issues with the implementation of IRIS

15.3. Unique ways of doing things - councils each do things differently so shared solutions may not be better

15.4. Loss of community interest.

Officer’s response to themes raised in submission

Lack of information

16. Current labour market challenges are requiring us to look at new ways of getting things done.

17. The initial scope of activities for the CCO are the collaborations that are already in progress across the Regional Sector / Te Uru Kahika.

18. Current collaborations are Environmental Monitoring and Reporting (EMaR), Land Air Water Aotearoa (LAWA), ReCoCo and Integrated Regional Information Systems (IRIS) programmes

19. It is anticipated that the CCO will be a useful vehicle to enable a joined-up response to new initiatives that are passed down to the sector from central government.

Past Performance / Results

20. The original IRIS project won a Taituarā (then SOLGM) Excellence Award and an ALGIM collaboration award.

21. The shared service approach to IRIS has delivered the following benefits to the regional sector:

21.1. Affordability – the development and implementation of the system would have created affordability issues if procured separately by each of the seven participating regional councils.

21.2. Risk reduction – predictability of cost, resilience for personnel changes, continuity of supply.

21.3. Alignment – there is significant interaction among domain experts and practitioners that is driving best practice through standardisation.

Unique ways of doing things

22. There is significant interaction among domain experts and practitioners that is driving best practice through standardisation.

23. Sector working groups are currently developing standards that will be included in the IRIS software and deployment.

Loss of community interest

24. Each participating Regional Council will have shareholder voting rights in the CCO.

25. Regional Council’s retain the right to choose whether to participate in each of the shared service projects.

Financial and Resource Implications

26. Involvement in the CCO will not require any additional funding initially, the operating costs will be covered by existing ReCoCo subscription fees that are paid by all regional councils and already built into the current LTP. Additional costs are incurred when each Council decides to participate in and contribute funding towards a work programme. However, these are costs that we are likely to have incurred as regional collaborations are usually aimed at reducing the cost of required work.

Key obligations of Council in making its decision

27. In making its decision, Council is required by the Local Government Act 2002 to:

27.1. consider the advantages and disadvantages of the reasonably practicable options identified in this report.

27.2. consider the views and preferences of all persons likely to be interested in or affected by the matter (as expressed through consultation). This means:

27.2.1. giving due consideration and having regard to all views and preferences, and

27.2.2. giving due consideration and having regard to such views and preferences with an open mind (i.e. not having a predetermined view).

Decision Making Process

28. Council and its committees are required to make every decision in accordance with the requirements of the Local Government Act 2002 (the Act). Staff have assessed the requirements in relation to this item and have concluded:

28.1. The decision does not significantly alter the service provision or affect a strategic asset, nor is it inconsistent with an existing policy or plan.

28.2. The use of a special consultative procedure is not prescribed by legislation.

28.3. The decision is significant under the criteria contained in Council’s adopted Significance and Engagement Policy and so has been the subject of a two-week public consultation process and hearing of submissions.

Recommendations

1. That the Corporate and Strategic Committee receives and considers the Regional Sector Shared Services Council Controlled Organisation staff report in conjunction with the submission presented to Council on 25 May 2022.

2. The Corporate and Strategic Committee recommends that Hawke’s Bay Regional Council:

2.1. Agrees that the decisions to be made have been the subject of community consultation.

And either

2.2. Agrees to participate in a Regional Sector Shared Services Council Controlled Organisation

2.3. Does not agree to participate in a Regional Sector Shared Services Council Controlled Organisation.

Authored by:

Sarah Bell

Team Leader Strategy & Performance

Chris Comber

Chief Financial Officer

Desiree Cull

Strategy & Governance Manager

Andrew Siddles

Chief Information Officer

Approved by:

James Palmer

Chief Executive

Attachment/s

There are no attachments for this report.

Hawke’s Bay Regional Council

Corporate And Strategic Committee

1 June 2022

Subject: Financial report for the period to 31 march 2022

Reason for report

1. This item provides the Committee with financial results for three quarters of the 2021-2022 financial year.

2. It also provides a high-level full year forecast for the year-end financial position, including commentary about possible requests to carry forward budget to the next financial year.

Executive Summary

3. The daily impacts of Covid-19 continue to disrupt delivery and planning. While delivery for most levels of service is on track to be achieved, some significant impacts to large scale projects will not be recoverable this financial year.

4. The Long Term Plan (LTP) capital work programme will require re-profiling across the remaining 8 years of the 10-year plan horizon to account for changes to project scoping, building internal capability and shifts in the external operating environment.

Within the Quarter 1 Jan – 31 March 2022

5. Q3 operating expenditure is slightly ahead of budget, $17.7m vs $17.2m contributing towards a small correction in the year-to-date operating spend to budget.

6. As anticipated, borrowing for capital expenditure continued to fall behind budget $5.3m against the quarter budget of $10.7m.

Year to Date to 31 March 2022

7. For the Group of Activities for the nine months to 31 March 2022:

7.1. Operating Expenditure $48.8m, $4.7m (9%) below budget

7.2. Operating income for the same period was $49.5m, $2.2m (5%) above budget

7.3. Operating surplus of $0.7m vs planned budget deficit of $6.2m

7.4. There is a planned budget deficit because the current financial year has operating costs which were planned to be funded through borrowing.

8. The YTD operating expenditure includes 3 specific areas of underspend, being:

8.1. Asset Management $1.2m due to vacancies, contractor delays and Covid-19 impacts on outdoor workforces in flood control, coastal hazards and open spaces

8.2. Integrated Catchment Management (ICM) $2m across environment enhancement and erosion control, and

8.3. Policy & Regulation $1.4m mainly in the Kotahi plan change project.

9. Capital expenditure YTD is $17m (53%) below budget and income is $2m (17%) behind budget. Asset Management is $13m behind budget, ICM $1.6m, Information Communication Technology (ICT) $1.9m and vehicles and building works are $1m behind budget. The underspends are due to a range of reasons including delays in consents and assessments, supply chain delays and other Covid-19 impacts explained in detail within the report.

10. Staff and overhead cost centres consolidated are close to budget, being $200k favourable. Within cost centres there are variances to budget, explained within this report.

Full Year Forecast

11. The indicative full year forecast is under budget by $8m (nett) in Opex, and $18m (nett) in Capex, with the largest impacts coming from Kotahi, IRG flood and river control improvements, regional water security, Clive River dredging and Erosion Control Scheme.

12. These projects remain a high priority and will require budget carry forward to complete delivery. Officers will conduct a review of the phasing of the carry-forward expenditure, and final carry-forward requests will only reflect funds required in addition to the 2022-2023 Annual Plan budget. The remaining rephasing of work programmes will be addressed as part of the 2023-2024 Annual Plan process.

13. The world-wide economic and political uncertainty partially due to the pandemic but also through the Russia-Ukraine situation have been and will continue to affect costs, with inflation rates significantly above budget.

14. Further ongoing impacts include supply chain issues, increased costs of borrowing and the financial markets incurring major losses. The most significant impact will likely be the loss of investment income from the managed funds this financial year.

Background

15. In the following tables the full year net budgets presented are:

15.1. Forecast – forecast net result for the year end

15.2. Budget – operating budget for FY2021-2022 including carry forwards from FY2020-2021

15.3. LTP – long-term plan budget for FY2021-2022.

16. Reserve movements and internal loan funding have not been included as these are calculated at year end.

17. Groups of activities income and expenditure include each activity’s share of overheads, general rates, UAGCs, targeted rates and investment income as per the FY2021-2022 budget.

Operating Income and Expenditure

18. Operating Expenditure is $4.7m below budget YTD, and this underspend is expected to increase by year end, although at a lesser rate than previous quarters.

19. Asset Management expenditure is $1.2m below budget YTD, though this underspend will decrease slightly by year end.

19.1. Flood Protection and Control Works is below budget by $800k with variances spread across all the schemes, and the recent rain events impacting the ability to complete all the tasks scheduled.

19.2. Coastal Hazards is $250k behind budget but more monitoring and research work is expected in the final quarter.

20. Integrated Catchment Management expenditure is $2m below budget YTD, and this underspend is expected to increase by year end.

20.1. Depreciation on ICM assets is $500k below budget YTD due to delays in the main ICM Science capital projects including LiDAR, 3D Aquifer Mapping (SkyTEM), Ruataniwha ground water modelling, monitoring drilling and equipment purchasing. This underspend will remain by year end.

20.2. Catchment Management is $1m below budget YTD, which is primarily due to budget phasing and variations in the multi-year funding agreements for the Enhancement & Protection Programme and Hill Country Erosion Fund/ECS Booster schemes.

20.3. The full year underspend forecast is mainly in the Erosion Control Scheme, due to reduced uptake/demand for grants this year, and a number of projects delayed into 2022-2023 due to wet weather and resource shortages (see further discussion in the indicative carry forwards section); and in Biodiversity, where Council has been successful in applications for external funding support for biodiversity projects, but the deliverables will not be complete until later in 2022.

21. Policy and Regulation expenditure is $1.4m below budget YTD and this will remain by year end.

21.1. Most of the shortfall in expenditure ($1.1m) is in Strategy & Planning, due to significant delays in the Kotahi project. Covid-19 is impacting the ability to progress iwi engagement, and Governance is still working through partnership arrangements.

22. Transport expenditure is $200k above budget YTD, and this overspend is anticipated to remain by year end.

22.1. The overspend is primarily due to the inflationary impact on the cost of operating the subsidised passenger transport, though some costs may be able to be recouped due to services not provided by the operator.

23. Governance & Partnerships expenditure is $250k below budget YTD and this will remain by year end.

23.1. Delays in the recruitment of the climate change ambassador have impacted the climate change engagement work, and Tangata Whenua Partnerships are under budget due to the slower roll out of Kotahi than anticipated.

24. Emergency Management is close to budget.

Investment Income

25. Managed Funds returned a YTD deficit of $1.3m at 31 March. Global events since the start of 2022 have resulted in a $5.6m decrease in value since 31 December 2021. The current forecast is a $10m income deficit by year end. This forecast is based on the current deficit at the time of writing, but world economic markets may decline further or show some recovery by year end. The forecast operating and capital expenditure and leeway in our treasury requirements enable any shortfall to be met by borrowing. Ongoing conversations about asset allocation and performance continue with our fund managers.

26. In consultation with HBRC, HBRIC has delivered a dividend of $2 million in the nine months to 31 March 2022, while retaining cash received from Port dividends to fund investments that were being considered. The YTD budgeted amount of $7.6m has been allocated to the Groups of Activity as investment income subsidy.

27. HBRIC are expecting to return the full dividend for the year (subject to the Napier Port dividend) and the YTD shortfall is just a timing difference.

28. Leasehold rent received net revenue of $1m from the Napier and Wellington leasehold portfolios in the nine months to 31 March 2022. The full year budgets presented include the fair value increase of the properties at revaluation on 30 June 2022.

Overheads

29. Overhead costs are in-line with budget, however, within cost centres there is some variance.

29.1. Activity cost centres hold the staff related costs for teams that work directly on Council activities. These are $0.6m behind budget with recruitment and retention issues affecting many cost centres.

29.2. Works Group detailed budgets were not included in the LTP. Works Group overhead costs (accommodation, energy, insurance, etc) are included in the revised budgets but these costs have not been recharged from corporate support YTD. This will be corrected for year end.

29.3. Corporate Support is $300k ahead of budget due to job re-gradings, increased accommodation costs as Council has increased staff levels and Works Group overhead costs being included in corporate overheads and not recharged.

29.4. Finance is $270k above budget reflecting the increased staffing levels to support the TechOne implementation.

29.5. Treasury is $300k above budget following higher interest rates.

29.6. People and Capability (P&C) is above budget due to additional consultancy costs to support the Covid-19 vaccination policy, high up take of workplace support services, and increased health and safety training.

29.7. Strategy and Governance is below budget following delays recruiting the climate change ambassador and reduced costs for the Annual Plan due to the no consultation approach.

29.8. Māori Partnerships is below budget due to vacant positions in the first half of the financial year.

30. Overheads are forecast to be close to budget at year end.

Capital Income and Expenditure

31. Capital expenditure is $17m below budget YTD, and this underspend is expected to remain at year end. The Senior Business Partner is working with the leadership team to re-profile the LTP capital borrowing programme across the remaining 8-year timeframe. Management is confident the strategies such as the Asset Management Strategy that underpin these borrowing requirements are still relevant, however large-scale capital delivery projects are fluid across multiple financial periods. Increasing external challenges, such as supply and resourcing, mean it is increasingly challenging to phase with any accuracy when the majority of spend or borrowing will occur.

32. Asset Management expenditure is $13m below budget YTD with vacancies (including Manager Regional Projects), contractor availability, Covid-19 and weather being factors alongside the original cashflow for the Crown-funded projects needing to be reforecast to reflect realistic delivery. It is anticipated this underspend will decrease slightly by year end.

33. The majority of the YTD underspend is in flood protection and control works ($8.5m).

33.1. Infrastructure Reference Group (IRG) expenditure is $7.1m below budget mostly due to weather-related construction delays, although noting that the LTP split the budget equally across years but 2022-23 will be significantly higher.

33.2. Consent for the Clive River dredging has been notified and requires a hearing, leading to further delays in commencing work and a shortfall in expenditure of $800k YTD.

33.3. Regional Water Security is $4m below budget YTD and this underspend will continue to year end. CHB Water Security is $1.3m behind budget. The Cultural Impact Assessment is still in progress.

33.4. Te Tua Water Security is $530k behind budget, with no progress this year.

33.5. The overall project has not begun to spend the $2.8m carried forward from the previous year ($2.1m to 31 March 2022).

34. Integrated Catchment Management expenditure is $1.6m below budget YTD, and this underspend will remain at year end.

34.1. The largest single shortfall ($450k) is in the 3D Aquifer Mapping project. GNS staff resourcing has been impacted significantly by Covid-19 as they typically recruit internationally and have also been losing international staff returning home.

34.2. The technical equipment replacement project is behind schedule due to supply chain issues ($275k). There is no risk to critical functions yet, just a slower pace of replacements.

34.3. No capital expenditure is anticipated to be incurred this financial year for Right Tree Right Place ($507k). Commercial and legal advice on farm planting plans is progressing before the pilot farm work begins, to ensure HBRC risk in relation to carbon revenues and security is properly assessed.

35. Governance and Partnerships capital activity comprises the Sustainable Homes programme and is $500k ahead of budget YTD due to the continued popularity of this low-cost home improvement opportunity.

36. ICT expenditure is $1.9m below budget YTD, and this underspend will remain at year end.

36.1. ICT hardware renewal projects are $200k underspent with the network and server upgrades delayed due to re-focusing on end-user hardware as part of the Covid-19 response.

36.2. ICT system implementation projects are $1.7m behind budget due to resourcing challenges.

36.3. Income is received from the other Hawke’s Bay councils and Land Information NZ who share in the costs of the aerial survey work for GIS.

37. Vehicles/Buildings/Furniture expenditure is $1m behind budget YTD, and this underspend will remain at year end.

37.1. Expenditure on new and replacement vehicles is $240k below budget. Vehicles totalling $808k are on order or pending order when the correct model becomes available, with expected delivery of all these vehicles in the next financial year.

37.2. The accommodation refurbishments are experiencing delays due to the supply of contractors and workers with a potential carry forward of $0.9m.

37.3. The Raffles Street building refurbishment ($500k) is on hold following the structural report concluding that the building was earthquake prone.

37.4. Work on upgrading the Radio Telephone network and equipment has started with most of the work expected to be completed before year end.

Debt

38. New debt of $15m has been drawn down and an additional $4m is forecast for this financial year. The LTP new debt forecast was $36.5m. The reduced debt requirement is due to the below budget capital and operating expenditure.

39. Debt principal repayments are on schedule with repayments of $2.36m completed by 31 March 2022 with total repayments for the year being $3.15m.

Accounting for ICT projects

40. In March 2021, the IFRS Interpretation Committee issued further guidance on the accounting treatment of cloud-based software implementations.

41. This guidance has now been reviewed by the Finance team.

42. The review has shown that most of the existing and forecast expenditure in the LTP relating to ICT projects will need to be classified as operating expense.

43. Finance and ICT will assess the classification of $2m+ work-in-progress from 2019-2020 and 2020-2021 and an additional $1m spent this financial year. Re-classifications to historical work-in-progress will be treated as prior year adjustments and will not affect the 2021-2022 results.

44. The 2022-2023 Annual Plan has been adjusted to reflect this guidance based on an estimated 60% of ICT capital expenditure in the LTP being re-classified as operating expenditure.

45. The CFO is satisfied that borrowing for projects of this nature is still appropriate, given the benefits. The Corporate plan and ICT digital work programme do not require revisiting as a result of these changes. The accounting treatment has no impact on cashflow or funding requirements.

Covid-19 Impact

46. Since the Q2 financial update, Council has continued to experience impacts from Covid-19 in terms of increasing unit costs, supply chain and recruitment issues, volatility in inflation and investment returns and the direct impact on our teams through uncertainty and changing working conditions. Some activities have started to pick up, but the delay on our large-scale projects such as Kotahi, IRG flood protection and improvements, and regional water security, will not be recovered this financial year.

Indicative Carry forwards

47. The indicative full year forecast net position is an underspend of $8m Opex and $18.8m Capex. This reflects the major disruption experienced this financial year from Covid-19 and staff recruitment and retention.

48. Indicative carryforwards of $4.7m Opex relates mostly to Kotahi, externally-funded Biodiversity projects and the Erosion Control Scheme (loan funded). Staff are clarifying what funding from the 2021-2022 year is committed to ECS projects to be carried into the 2022-2023 year. Any unspent budget will be relinquished and not carried forward. Staff intend to engage Council in a discussion through the LTP development to extend the life of the ECS beyond the original 30 year timeframe.

49. Indicative carryforwards of $17.17m for Capex relates mostly to IRG flood and river control improvements, Regional Water Security, Clive River Dredging, ICT projects and office alterations. The majority of this work is funded via reserves or external loans.

50. Activities identified for carryforward are in progress and funding is still required. However, before requesting final carryforwards at the conclusion of this financial year, staff will undertake a review of the phasing. Only funds that are required on top of the Annual Plan 2022-2023 budget will be put forward for carryforward from 2021-2022. Any remaining budget amount still required will be addressed as part of the Annual Plan 2023-2024 process.

51. Staff remain confident that the LTP budget quantum is reliable, however, phasing of the expenditure on an annual basis will need to be readdressed given the disruptions experienced in the current year. It is difficult to phase the large capital programmes with any real certainty in the current environment and the proposed 2022-23 Annual Plan remains our best estimate for the next financial year.

Decision Making Process

52. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that, as this report is for information only, the decision-making provisions do not apply.

Recommendation

That the Corporate and Strategic Committee receives and notes the Financial report for the period to 31 March 2022.

Authored by:

Amy Allan

Management Accountant

Tim Chaplin

Senior Group Accountant

Jessica Ellerm

Programme Director

Approved by:

Chris Comber

Chief Financial Officer

James Palmer

Chief Executive

Attachment/s

There are no attachments for this report.

Hawke’s Bay Regional Council

Corporate and Strategic Committee

1 June 2022

Subject: Report from the Finance, Audit and Risk Sub-committee meeting

Reason for Report

1. The following matters were considered by the Finance, Audit and Risk Sub-committee (FARS) meeting on 4 May 2022 and are now presented for the Committee’s consideration alongside any additional commentary the Sub-committee Chair wishes to offer.

Agenda items

2. The Annual Internal Audit Plan 2022-2023 for adoption item provided the Finance Audit and Risk Sub-committee (FARS) with a potential plan for internal audits to be undertaken in the 2022-2023 financial year. The Sub-committee discussions covered:

2.1. Data Analytics and Organisational Change Consolidation and Prioritisation internal audits were approved to occur in the 2022-2023 financial year.

2.2. A Health & Safety deep dive review, to ensure systems, processes and practices are compliant with legislation, will be carried out by a Health & Safety external expert instead of the internal audit on H&S reporting proposed in the 2022-2023 plan. It was suggested that either Cyber Security or Asset Management be brought forward in place of Health & Safety.

2.3. The Chief Executive suggested that a deep dive into the Asset Management systems and processes is required, which would not be achieved by the suggested ‘internal audit’. It was agreed that Chris Dolley will present work that has been done in Asset Management around performance, internal processes/policies and practices to the next FARS meeting to further inform a decision by the sub-committee on the nature and scope as well as timing of an asset management review.

3. The Fraud Internal Audit report item provided the sub-committee with the findings and recommendations from the Crowe internal audit. Discussions covered:

3.1. Key observations noted that no high priority findings were observed.

3.2. Key policies for managing fraud and corruption risks require review and updating including clear documentation of ownership.

3.3. An apparent lack of fraud and corruption policy awareness amongst staff will be addressed by training as a matter of priority, and will cover conflict of interest management.

3.4. The sub-committee agreed with the management actions recommended and resolved:

3.4.1. Agrees that the corrective actions and due dates following, for medium risk findings from the Crowe HBRC Fraud Risk Gap Analysis Report February 2022, are considered adequate to address the report’s findings and recommendations, with progress to be monitored and reported to the Sub-committee using the Corrective Actions Dashboard.

3.4.1.1 The Fraud Policy is to be reviewed – implementation September 2022

3.4.1.2 The formal owner of the Fraud Policy is to be identified – implementation September 2022.

3.4.1.3 Fraud and Corruption Awareness training will be delivered to all staff – implementation October 2022.

3.4.1.4 Conflicts of Interest and Gifts policies are to be reviewed – implementation September 2022.

3.4.1.5 The Appointment of Staff Policy is to be reviewed – implementation October/November 2022.

3.4.1.6 The Protected Disclosures Policy is to be reviewed – implementation October/November 2022.

4. The Annual Internal Audit Plan 2021-2022 status update item highlighted:

4.1. Data is currently being extracted from TechOne to generate the FY22 Data Analytics Audit, which is currently conducted annually. If results of the FY22 audit are clean, with limited exceptions, reducing the frequency to two-yearly will be considered.

5. The Road Safety s17a Review outcomes item sought approval from the Sub-committee to progress the preferred service delivery model from the review to:

5.1. Deliver Road Safety collectively as a region, with support from HBRC staff including a new transport planner.

5.2. Establish a Road Safety sub-committee of the Technical Advisory Group (TAG) with a specific focus on delivering regional road safety promotion, to support a more effective programme with identified priorities and an annual work programme. This sub-committee will also have responsibility for reviewing the Regional Road Safety Strategy to provide strategic direction that is aligned with national policy.

5.3. HBRC management of funding the new delivery structure, with Territorial Authorities retaining their funding to deliver their own community messaging.

6. The 2020-2021 Annual Report adoption update item advised that Council will receive an unmodified Audit and the Annual Report will be ready for adoption on 25 May 2022.

7. The Quarterly Treasury Report for the period 1 January - 31 March 2022 item provided an update on the performance of Council’s investment portfolio, and highlighted:

7.1. As of March 2022 the managed funds are $1.5m below the expected capital projected amount due to recent downward trends in markets.

7.2. Any shortfall in investment income will be reflected as an operating deficit and/or borrowed to fund Council activities.

8. The Risk Maturity Update highlighted:

8.1. Phase IV of the risk maturity roadmap is behind schedule and the Executive Leadership Team (ELT) has supported putting it on hold until Covid disruptions ease.

8.2. Reviews of risk appetite statements and the Risk Management policy and framework will continue to be progressed in the meantime.

9. The Corrective Actions Dashboard items updated on the progress carrying out corrective actions that respond to internal audit findings, highlighting:

9.1. The good work done to complete actions for Risk Management Maturity and Talent Management

9.2. The HBRC Covid-19 Response debrief report has been completed.

Decision Making Process

10. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that:

10.1. All items were considered at the Finance, Audit and Risk Sub-committee in accordance with the Terms of Reference, specifically in relation to the 4 May 2022 meeting, its responsibility and authority to:

10.1.1. Receive the internal and external audit reports and review actions to be taken by management on significant issues and recommendations raised within the reports (3. Fraud Internal Audit report, 5. Road Safety s17a Review outcomes and 9. Corrective Actions dashboard)

10.1.2. Review whether Council management has a current and comprehensive risk management framework and associated procedures for effective identification and management of the Council’s significant risks in place (8. Risk Maturity Update)

10.1.3. Undertake systematic reviews of Council operational activities against Council stated performance criteria to determine efficiency/effectiveness of delivery of Council services (5. Roadsafe S17a Review)

10.2. The Finance, Audit and Risk Sub-committee is delegated by Council, specifically in relation to the 4 May 2022 meeting, to:

10.2.1. Receive all of the information and documentation needed or requested to fulfill its responsibilities and duties, subject to applicable legislation

10.2.2. Ensure that recommendations in audit management reports are considered and, if appropriate, actioned by management (3. Fraud Internal Audit report, 5. Road Safety s17a Review outcomes and 9. Corrective Actions dashboard)

10.2.3. Review the objectives and scope of the internal audit function, and ensure those objectives are aligned with Council’s overall risk management framework (2. Annual Internal Audit Plan 2022-2023 for adoption and 4. Annual Internal Audit Plan 2021-2022 status update)

10.2.4. Assess the performance of the internal audit function and ensure that the function is adequately resourced and has appropriate authority and standing within Council (2. Annual Internal Audit Plan 2022-2023 for adoption and 4. Annual Internal Audit Plan 2021-2022 status update).

10.3. This item is for reporting purposes in accordance with the Finance, Audit and Risk Sub-committee Terms of Reference, specifically to report to the Corporate and Strategic Committee to fulfil its responsibilities for:

10.3.1. The provision of appropriate controls to safeguard the Council’s financial and non-financial assets, the integrity of internal and external reporting and accountability arrangements

10.3.2. The independence and adequacy of internal and external audit functions

10.3.3. The robustness of risk management systems, processes and practices.

10.4. This item is for information and noting only, there are no decisions required, and therefore the LGA decision-making provisions do not apply.

Recommendations

1. That the Corporate and Strategic Committee receives and notes the Report from the Finance, Audit and Risk Sub-committee meeting, including the following resolutions.

The Annual Internal Audit Plan 2022-2023 for adoption

1.1. Receives and considers the Annual Internal Audit Plan 2022-2023 for adoption staff report.

1.2. Adopts the Crowe internal audit plan for the 2022-2023 financial year, which includes:

1.2.1. data analytics

1.2.2. organisational change consolidation and prioritization.

1.3. Agrees to further consider an Asset Management audit or review at the next sub-committee meeting.

Fraud Internal Audit report

1.4. Receives and considers the Fraud Internal Audit Report.

1.5. Agrees that the following corrective actions and due dates for medium-risk findings from the Crowe HBRC Fraud Risk Gap Analysis Report February 2022 are considered adequate to address the report’s findings and recommendations, with progress to be monitored and reported to the Sub-committee using the Corrective Actions Dashboard.

1.5.1. The Fraud Policy is to be reviewed – implementation September 2022

1.5.2. The formal owner of the Fraud Policy is to be identified – implementation September 2022

1.5.3. Fraud and Corruption Awareness training will be delivered to all staff – implementation October 2022

1.5.4. Conflicts of Interest and Gifts policies are to be reviewed – implementation September 2022

1.5.5. The Appointment of Staff Policy is to be reviewed – implementation October/November 2022

1.5.6. The Protected Disclosures Policy is to be reviewed – implementation October/November 2022.

Annual Internal Audit Plan 2021-2022 status update

1.6. That the Finance, Audit and Risk Sub-committee receives and notes the Annual Internal Audit Plan 2021-2022 status update staff report.

The Road Safety s17a Review outcomes

1.7. Receives and considers the Road Safety s17a Review outcomes staff report.

1.8. Agrees the preferred service delivery model, as approved by way of a resolution of the Regional Transport Committee on 11 March 2022, of a fully collaborative regional approach to road safety including:

1.8.1. A revised structure that will drive an enhanced collaborative model across the region through the Napier City, Hastings District, Central Hawke’s Bay District, Wairoa District and Hawke’s Bay Regional councils, Waka Kotahi, NZ Police and their partners working together to deliver better road safety outcomes through engineering, education and enforcement.

1.8.2. The road safety programme will be developed and monitored at a strategic regional level and then implemented locally at an operational level.

1.8.3. A strengthened Regional Transport Committee role will ensure effective governance and decision-making, giving clear direction and goals.

1.8.4. A focused Road Safety Group will support a more effective programme across the region, coming together to identify priorities and set the annual programme and then to review the annual programme (midway through the year) against objectives and measures and adjust it to suit current / emerging needs.

1.8.5. RoadSafe HB will provide a coordination and community engagement role in delivery of the programme with strategic support from the Regional Transport Committee and the Napier City, Hastings District, Central Hawke’s Bay District, Wairoa District and Hawke’s Bay Regional councils.

The 2020-2021 Annual Report adoption update

1.9. That the Finance, Audit and Risk Sub-committee receives and notes the Hawke’s Bay Regional Council 2020-2021 Annual Report adoption update staff report.

Quarterly Treasury Report for the period 1 January - 31 March 2022

1.10. Receives and notes the Quarterly Treasury Report for the period 1 January - 31 March 2022.

1.11. Confirms that the performance of Council’s investment portfolio has been reported to the Sub-committee’s satisfaction.

Risk Maturity Update

1.12. That the Finance, Audit and Risk Sub-committee receives the Risk Maturity Update staff report, and notes that phase IV of the risk maturity roadmap is temporarily ‘on hold’ while the business prioritises resourcing to respond to current levels of business disruption.

Corrective Active Dashboard

1.13. Receives and notes the Corrective Actions Dashboard staff report.

1.14. Confirms that the corrective actions undertaken and/or planned for the future adequately respond to the findings and recommendations of the internal audits.

1.15. Confirms that the dashboard reports include adequate information on the status of the corrective actions.

1.16. Reports to the Corporate and Strategic Committee, the Sub-committee’s satisfaction that the Corrective actions dashboard report provides adequate evidence of the management actions undertaken or planned to respond to findings and recommendations from completed internal audits.

Authored by:

Olivia Giraud-Burrell

Quality & Assurance Advisor

Leeanne Hooper

Team Leader Governance

Helen Marsden

Risk & Corporate Compliance Manager

Approved by:

James Palmer

Chief Executive

Attachment/s

There are no attachments for this report.

Hawke’s Bay Regional Council

Corporate and Strategic Committee

1 June 2022

Subject: HBRC Forestry

Reason for Report

1. This paper provides a summary of Hawke’s Bay Regional Council’s (HBRC) forestry assets, including the Tūtira mānuka plantation.

2. The information was presented initially in two separate papers, one dealing with the mānuka plantation and the other the remainder of the forestry assets, to Finance, Audit and Risk Sub-committee on 2 March 2022.

Executive Summary

3. HBRC manages the 550ha Crown-owned Tangoio Soil Conservation Reserve as required by section 16 of the Soil Conservation and Rivers Control Act (1941). Fifty-eight percent (320ha) of the Reserve is currently in commercial forestry and the remainder in native forest at varying stages of regeneration. Commercial forest in the Reserve has a 30 June 2021 valuation of $6,214,000 (attached).

4. In addition, there are 529ha of commercial forestry across five HBRC-owned properties of a combined area of 1029ha. These properties have a range of objectives as described in this item, including wastewater irrigation, carbon sequestration, recreation, and trialling and demonstrating alternative timber species. Commercial forest in the HBRC properties has a 30 June 2021 valuation of $7,754,800.

5. 136ha of Tūtira Regional Park was planted in mānuka over the period 2011 to 2013, approximately 104ha of which has successfully established and matured to form a mānuka plantation. The objectives of the plantation were to trial and demonstrate the viability of high UMF mānuka as an economic soil conservation crop alternative to plantation forestry on erosion-prone land and to facilitate the eventual reversion of the steep lands above Lake Tūtira to native forest. All of the costs and few returns have been realised early in the life of the plantation and it is currently well short of a positive return, but the 50-year projection is for an IRR of 8%.

6. Around 24ha of commercial forest has been established on river land controlled by HBRC. This is currently unvalued.

7. HBRC is a minor partner in 190ha of erosion-control forests across the region. These are expected to return in the realm of $500,000 to HBRC over the coming 10 years.

8. HBRC has a significant carbon portfolio of 146,400 post 1989 NZU and 14,907 pre 1990 NZU, currently worth $12 million at the current price of $76 per NZU.

9. Staff are in the process of forming a draft carbon policy to present to Council. The policy will confirm the approach HBRC will take to trading carbon which will have a significant effect on the returns of different land use and species selection options and, therefore, on decisions made in the management of the HBRC forest estate.

10. Detailed management plans are in place for the Tangoio Soil Conservation Reserve and the HBRC Forest Estate and have been approved by two trained foresters, one a member of the New Zealand Institute of Forestry. The Maungaharuru Tangitū Trust has approved the management plan for the Tangoio Soil Conservation Reserve as is required by the Mana Enhancing Agreement signed with HBRC in 2016. Objectives and policies from the plans have been provided in this item and full plans will be provided to Councillors on request.

Strategic Fit

Water quality safety and certainty

11. All of the forests provide erosion control and sediment reduction benefits to some extent, but in the Waipukurau and Waipawa Forests this is negligible as the land is very stable anyway. In the erosion-prone soils of Tūtira, Waihapua and Tangoio, the benefits are significant. Having replaced aging septic tanks with the Mahia township wastewater scheme, the Mahia Forest plays an important role in improving water quality and safety in that area.

12. The Tūtira mānuka plantation has effectively revegetated 100 ha of erosion-prone soils (12% of the catchment draining to Lake Tūtira) in one of the most sensitive catchments (in terms of environmental, cultural and recreational values) in Hawke’s Bay.

Smart sustainable landuse

13. The HBRC Forests are all multi-use properties. As well as the financial returns they generate via carbon sequestration and log sales, they play important roles in the communities in which they are situated. Forest management decisions are made in consideration of all the various values and objectives of the properties.

14. The Tūtira mānuka plantation is enabling a transition to native forest at a projected 8% IRR over 50 years. This is not as high a return as exotic plantation forestry could achieve, but is a much more suitable use for the land given the over-riding soil conservation, recreation, and cultural objectives. It is also more than was achieved through grazing the land.

15. The plantation has made a significant contribution to the development of sustainable landuse options nationally. As the only plantation of 100ha or more at that time, it was an important case study and research site in the High Performance Mānuka Plantations PGP Programme, which ran from 2011 - 2018 and in which HBRC was a key investor. It was also one of two key sites used by Landcare Research scientists in assessing the erosion control potential of the landuse^{^[1]}. Comvita Ltd continues to undertake its own research in the plantation to determine the factors influencing honey production.

Healthy and functioning biodiversity

16. The Tangoio Soil Conservation Reserve and Mahia Forest contain areas classified by HBRC’s ecologists as ecosystem prioritisation sites. Significant areas of natives are being planted and regenerated in the Tūtira and Waipukurau Forests, and the Tangoio Soil Conservation Reserve over the coming years.

17. The mānuka plantation has significantly increased the area of indigenous vegetation in the Lake Tūtira catchment. Mānuka is a primary colonising species and creates the conditions for other secondary species to establish and emerge through it over time, leading eventually to mature native forest.

Sustainable services and infrastructure

18. The Mahia Forest provides an important wastewater treatment function to the Mahia Community, and the Waipukurau Forest (also known as Gum Trees Mountain Bike Park) is a popular recreational venue and attraction to the town. Management of the Tangoio Soil Conservation Reserve is very important in ensuring the ongoing integrity of the section of State Highway 2 that runs through it. Due to access limitations, the Waihapua Forest Park has not yet been developed, but there is strong support for this in the surrounding Tūtira community (as previously represented by the now disbanded ‘Tūtira Visionary Group’).

19. In increasing soil protection in the event of significant rainfall events, the Tūtira mānuka plantation contributes to the protection of the landscape, infrastructure and services of the Regional Park (attached). The plantation aligns with other significant work to conserve soils and water quality in the Tūtira catchment, including the Maungaharuru Tangitū-led Tūtira Mai i Ngā Iwi and Te Waiū o Tūtira projects, and provides valuable lessons for the Right Tree, Right Place Project and HBRC’s objectives in promoting regional afforestation.

Background

Tangoio Soil Conservation Reserve

20. The Tangoio Soil Conservation Reserve comprises 550ha adjacent to State Highway 2 between Tangoio and Tūtira. It was acquired by the Crown in 1946 for the protection of the Highway, following ongoing closures due to slips, most notably the ‘Anzac Storm’ of 1938 which caused the Highway to be closed for a period of months.

21. The Reserve was managed in turn by a series of Government departments, before this responsibility passed to the Hawke’s Bay Catchment Board and then its successor HBRC in 1989 as required by Section 16 of the Act:

21.1. “Every soil conservation reserve shall be under the control and management of the Board within whose district it is situated, and the Board shall manage and control the reserve in such manner as in its opinion will best conserve the soil of the reserve and prevent injury to other land.”

22. Currently, 58% of the Reserve’s area (320ha) is in commercial forestry and the remainder in varying stages of reversion to native forest. Returns from the commercial forestry are held in a Reserve Fund, which is used to entirely fund the management of the Reserve - no ratepayer funds are used in the management of the Reserve.

23. Budgets are reviewed every 3 years and cashflows modelled over 40 years to ensure the ongoing sustainability of the Reserve Fund. As required by Sections 21-23 of the Maungaharuru Tangitū Hapū Claims Settlement Act (2014), surplus funds not required for Reserve management are transferred to a ‘Catchments Fund’ where they available for carrying out soil conservation projects in the surrounding catchments in partnership with the Maungaharuru Tangitū Trust (MTT).

24. To date, $320,000 of Reserve Funds have helped leverage some $6 million in funding for the MTT-led projects Tūtira Mai Ngā Iwi, Te Waiū o Tūtira, and Kia eke Te Ngārue, Kia eke Arapawanui.

25. A Mana Enhancing Agreement signed with MTT in 2016 requires HBRC to maximise training and employment opportunities for MTT in the Reserve, and for HBRC and MTT to agree the Reserve’s three-yearly management plans.

26. As the forests on the Reserve were established prior to 1990, they are not eligible for entry in the Emissions Trading Scheme and earning NZU.

Forests owned by HBRC

River Berms

27. Around 24ha of forest is planted on river berms around the region. Generally, soils are very stony and conditions for tree growth are poor in these sites. River berms are also invariably weed hot spots and control of these in newly-established plantings can be challenging.

28. Despite these challenges, forests are a good use for the many unused hectares of river berm land controlled by HBRC. As well as the revenue from carbon and logs, tree canopies assist in shading out the various weeds over time and negate the need for grazing and the associated risks of nutrient loss in the free-draining gravel soils. The flat terrain ensures low logging costs, with no tracking and subsequently low risk of sediment loss.

29. 6ha of the river berm forests are radiata pine established in the mid to late 1990s. The other 18ha is a 2021 planting of radiata pine (14ha) and Eucalyptus bosistoana (4ha) on the left bank of the Waipawa River off Walker Road.

30. While the Walker Road planting is too newly established for registration in the emissions trading scheme, HBRC’s extensive willow plantings received a one-off allocation of 14,907 pre-1990 NZU in 2008.

Joint Venture Forests

31. Between 1994 and 2000, HBRC entered into 10 joint ventures with landowners across the region to establish radiata pine plantations on some 190 hectares of erosion-prone land. The joint venture contracts expire on harvest of the trees.

Table 1: HBRC Joint Venture Erosion Control Forests

Owner	YOE	Logging Date (at 30yrs)	Ha	Estimated Ha Harvestable	HBRC share	Estimated HBRC revenue
Netherton Station	1995	2025	29	14	14%	$35,000
McRae Trust	1995	2025	9.5	9.5	13%	$30,875
Roy Stoddart	1995	2025	40	4	15%	$ -
Parsons Estate	1996	2026	22.6	22.6	22.6%	$127,690
Beamish	1996	-	5.4	0	18%	$ -
Waipari Station (Kairākau)	1997	2027	20	20	16.6%	$83,000
Lloyd and Virginia Cave	1997	2027	30	30	13%	$97,500
Bruce Goldstone	2000	2030	4.5	4.5	13%	$14,625
Waipari Station (Glengarry)	2000	2030	20	20	14%	$70,000
Haupouri Station	2000	_	8.4	0	18%	$ -
Totals			189.4	124.6		$535,385

32. Though erosion control was HBRC’s primary objective, the agreements anticipated the forests would eventually be harvested and generate a financial return. The objective of the joint venture contracts is stated in Clause 1.1 of each:

32.1. “The goal of the parties hereto is the establishment and management of the Erosion Control Plantation, which is to be planted with rapidly growing exotic timber species, for a rotation period to ensure that the land within the Erosion Control Plantation is managed and harvested in a manner which will minimise the erosion impacts”.

33. More recently, staff have agreed with landowners that approximately 64ha of the joint ventures will not be harvested as the environmental impacts would be too great. Staff are looking into ways to assist the joint venture partners to revert the unharvested forests to native over time, either through assisting registration of the trees in the ETS and using NZUs earned to fund the work, or by using some of the revenue earned in harvesting the better JV forests.

34. Management objectives for the joint venture forests are listed in the HBRC Forest Estate 2021-2031 Management Plan as:

34.1. To ensure where harvest is environmentally and economically feasible, it is carried out with minimal soil conservation or environmental impacts

34.2. To assist landowners in transitioning harvested sites to a sustainable post-harvest landuse

34.3. To assist landowners to transition to permanent native forest where harvest is not environmentally or economically feasible

34.4. To maximise financial returns from the forests without compromising the above objectives.

Tūtira Regional Park Pine Forest

35. Between 1991-1993, 78ha of pine forest was established on the Tūtira Regional Park prior to HBRC purchasing the property, and a further 36ha immediately after. All were established primarily for soil conservation following the devastation wreaked by Cyclone Bola (photos attached), with eventual financial returns from harvest being an important secondary objective.

36. The forest is currently in the process of being harvested and afterwards approximately 50% will be converted to native forest for permanent retirement. Council papers relating to the harvest procurement process were presented to EICC on 19 June 2019 and regarding the replanting on 3 February 2021.

37. Management objectives for the Tūtira Forest are listed in the 2021-2031 HBRC Forest Estate Management Plan as:

37.1. To manage the forest and plantation in a way that best supports the soil conservation, biodiversity, recreational, cultural and aesthetic values of the Regional Park

37.2. To maximise soil conservation and minimise sediment loss to waterways and Lakes Tūtira and Waikōpiro

37.3. To facilitate reversion to native forest over time

37.4. To enhance biodiversity values on the property and create connections to other habitat in the district

37.5. To maximise financial returns from the Forest while not compromising any of the above.

Tūtira Regional Park Mānuka Plantation

38. Since its purchase by HBRC in 1998, successive management plans for the Tūtira Regional Park had provided for the reversion of the 140ha of steep land above the lakes to native forest. This was seen to be the most appropriate landcover given the various soil conservation, recreation, biodiversity and cultural values and objectives of the property.

39. Initially it was proposed to revert the land by scaling back grazing intensity, thereby allowing mānuka and kanuka to establish while preventing large areas of rank grass and weeds from developing.

40. By 2010, a strong and growing market in mānuka honey had led to discussion around the feasibility and potentially greater profitability (relative to the standard practice of collecting honey from wild and unimproved mānuka) of establishing plantations of mānuka bred specifically for high UMF*^{^[2]}. In 2011, HBRC became an investor in the High Performance Mānuka Plantation Research Programme alongside industry and government agency partners.

41. The Tūtira mānuka plantation was established under the umbrella of this programme. The objectives of the plantation were to speed the reversion to native occurring naturally, trial the viability of mānuka plantations as an alternative and more sustainable landuse option to grazing or plantation forestry on steep and/or eroding hill country, and use the results to inform landowners and a planned HBRC ‘Trees on Farms’ regional afforestation programme, all while making a greater than 7% return on investment.

42. Consultants advising on the venture considered HBRC’s threshold ROI of 7% would be easily achieved and that the IRR was likely to be around 19.5%. This advice was given with the caveat …”it should be pointed out that no large-scale areas of known high UMF variety mānuka have been established. Thus, costs and returns to date are best estimates^{^[3]}”.

43. Ultimately, some 104ha of mānuka were successfully established. The seedlings were supplied by Comvita Ltd and had been bred for high UMF levels and for the timing of their flowering.

44. A contract signed by HBRC and Comvita in 2012 gave Comvita exclusive rights to beekeeping on the property. The contract is reviewed every 7 years, with the last review having been carried out in 2019. Given the high percentage of high UMF honey in the previous year, in the 2019 review HBRC negotiated a change from a fixed 18.5% percent share of honey revenue to the use of a sliding scale, with percentage share of revenue based on the UMF value of the honey (Table 2).

Table 2: Sliding Scale, HBRC revenue share

UMF

HBRC Share of Net Revenue

UMF <5

UMF 5-8

UMF 8-11

UMF 11-15

UMF 15+

10%

20%

30%

35%

45. The first commercial harvest from the plantation occurred in 2018 and has continued annually since. Key metrics are shown in Table 2 below. The 2020-2021 season harvest was badly affected by poor weather and triggered the floor payment of $50 per hive.

46. Preliminary results from the 2022 harvest indicate an improved return this year. Hive placement and removal was aligned more strictly to the main nectar flow, resulting in a higher percentage (estimated ~80%) of monofloral honey. UMF levels are sitting in the range 4-6, with estimated final levels of 7-9 after the 10-month presale storage period. Mānuka honey is stored for a period of time prior to sale to allow greater levels of UMF to be converted from its chemical precursor (DHA).

47. The improved timing was made possible by using a helicopter to place hives in locations where previously track limitations had restricted vehicle access in wet ground conditions. It remains to be seen whether the helicopter cost is justified by the increased honey returns. Once the season’s final harvest report is received, staff will assess the costs and benefits of improving track access for greater returns. Given the overriding soil conservation and aesthetic considerations, doing so would only be considered if the impacts on these were minimal.

Table 3: Key Metrics of Harvest to Date, Tūtira Plantation

	Hive numbers	Kg Honey (total)	Kg Honey (per hive)	% UMF 10 or higher (after x months storage)	HBRC Return (excl GST)	Initial forecast in business case
2018	72	1,977	27	13%	$6,334	$19,384
2019	72	2,187	30	0	$6,561	$24,829
2020	96	5,598	58	0	$5,835	$28,314
2021	112	542	5	0	$5,600	$28,314
2022 (Preliminary results)	100	1,813	18	To be confirmed	To be confirmed	$28,314

48. As shown in Table 3, notwithstanding the potential improvements in the current season, honey returns have been short of those predicted in the initial business proposition presented to council in each year to date. A particularly poor 2020-2021 season was reported by staff in the August 2021 Significant Activities update to Council, where it was picked up and reported on by media in an article titled Hawke's Bay Regional Council's mānuka honey venture makes dismal returns and published in Stuff online 12 Nov 2021. A paper was presented to Finance, Audit and Risk Sub-committee (FARS) on 2 March 2022 addressing concerns raised by the article.

Waihapua Forest Park

49. The Waihapua property had been of interest to HBRC for many years before the opportunity to purchase it arose in 2009. The reasons were summarised by a sub-committee of Council charged with forming a strategy statement for the property in the same year:

49.1. “Its significant open space and strategic value given its location adjacent to key amenity areas and Tangoio Soil Conservation Reserve; its potential to demonstrate land use options relating to soil conservation and waterways; its severely eroded nature (photos attached); and its commercial advantages associated with timber and carbon trading.”

50. Following purchase, Council developed the following Goal for the property:

50.1. “A profitable working example of integrated and multi-functional land use centred on sequestration and soil conservation forestry consistent with wider social, amenity, environmental and economic values and opportunities within the Tutira area.”

51. Council also identified key functions for the property as:

51.1. … social engagement, amenity values, recreation, the improvement of water quality, soil conservation, biodiversity and indigenous ecological values, research, and demonstration.”

52. Council was advised at the time an internal rate of return of 6-7% was likely.

53. The name ‘Waihapua Forest Park’ was formally adopted by Council on 27 April 2011 after advice from Maungaharuru Tangitū Trust, endorsed by the Tūtira Visionary Group, a group formed around that time to encourage the development of tourism and other opportunities for the Tūtira District. The name is derived from a deep spring with special qualities found on the property.

54. Planting was planned in conjunction with the Hawke’s Bay Branch of the New Zealand Farm Forestry Association and carried out between 2009 and 2013. More than 25 timber species on a range of management regimes were established (attached). There are two dedicated trial sites on the property, one of Eucalyptus fastigata, and the other of mixed ground durable eucalyptus species. The site-specific planting resulted in many small compartments, useful for trial and demonstration purposes, but significantly increasing the difficulty of logging economically using conventional methods.

55. Approximately 30ha of the property was deemed to be too steep and erosion-prone to establish in production forestry or was already in the early stages of reversion to native forest and not planted with production species on that basis.

56. As well as being envisaged as a future recreational and educational venue in its own right, Waihapua was seen as a key addition to a potential walkway over the corridor of public lands stretching almost uninterrupted for some 16km from the bottom of the Tangoio Soil Conservation Reserve in the south to the top of the Tūtira Regional Park in the north (figure 1).

Map

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Figure 1: Concept Plan, Tūtira Trails

57. Due to a lack of safe access to the property, the walkway has not yet been developed and opened to the public. The main access is through private property, but the easement only provides for HBRC and its contractors. Other options are possible, but difficult to form tracks in given the steep and eroding nature of the land. Access from State Highway 2 is hazardous and would require investment before opening to the public.

58. Management objectives are listed in the HBRC Forest Estate 2021-2031 Management Plan as:

58.1. To maintain soil conservation on the property and minimise sediment loss to the Waikoau River and erosion impacts on State Highway 2

58.2. To establish and maintain secure access to the property for recreational use

58.3. To establish and maintain links from the property to Guthrie-Smith Arboretum and Education Trust and Tūtira Regional Park

58.4. To enhance biodiversity values on the property, creating connections to other habitat in the District

58.5. To demonstrate alternative commercial forest species and support the development of their genetics and markets

58.6. To maximise financial returns from the Forest while not compromising any of the above.

Mahia Forest

59. The Mahia Forest property was purchased in 2009 primarily as a receiving environment for Mahia township’s treated wastewater, but also as a carbon and timber investment property.

60. Unlike the Central Hawke’s Bay Wastewater Forests, Wairoa District Council (WDC) did proceed with irrigating treated wastewater into the Mahia Forest.

61. After being pumped over the hill from the township, the wastewater passes through a series of three settlement ponds, before being screened and pumped to irrigation fields in the forest. Irrigation in the different fields is alternated to allow them to fully dry out between applications and maintain the treatment capacity of the soils. Of the total 50ha land area, and 35ha forested area, approximately 11ha is used to treat wastewater.

62. A key risk in wastewater-irrigated forests is exceeding the treatment capacity of the soil. This was a major reason for the dissolution of Rotorua’s Whakarewarewa Forest wastewater irrigation scheme after 28 years of operation. This risk is managed in the Mahia Forest through ongoing monitoring of tree health, application volumes and soil moisture levels. The risk to the environment is managed by monitoring water quality parameters in the stream leaving the forest.

Figure 2: Nitrogen removed from Wastewater in the Whakarewarewa Land Treatment System Over Time^{^[4]}

63. Management objectives are listed in the HBRC Forest Estate 2021-2031 Management Plan as:

63.1. To maintain the ability of the land to receive and effectively treat wastewater from the Mahia Township for the foreseeable future

63.2. To protect cultural values within the Forest, and in particular the registered archaeological sites

63.3. To enhance biodiversity values in the Forest, building on the work of the Predator Free Mahia Project

63.4. To maximise financial returns from the Forest while not compromising any of the above.

Central Hawke’s Bay Forests: Waipukurau and Waipawa

64. The two Central Hawke’s Bay properties were purchased between 2009 – 2010 and, as with the Mahia Forest, were established in forest for the purpose of safely disposing of treated wastewater from the townships while earning revenue from carbon sequestration and high value hardwood timber.

65. Central Hawke’s Bay District Council opted for another option to deal with their wastewater, and the forests have never been used for this purpose.

66. In 2009 HBRC signed an MoU with the Rotary Rivers Pathway Trust, allowing the Trust use of the Waipukurau Forest for mountain biking for a term of 30 years. Since that time, the Trust has established approximately 15km of mountain bike tracks in the forest, with a further 5km scheduled for completion in the coming months. The Park is ridden an estimated 10,000 times annually.

67. Currently, the Waipawa Forest has only a commercial purpose, though two requests from the community have been made for its use. The Central Hawkes Bay District Council has requested the use of the forest for disposing of sludge remaining after their sewerage treatment, and the Hawke’s Bay Riders’ Club has requested its use for horse rides and potentially grazing.

68. Management objectives for the Central Hawke’s Bay Forests are listed in the HBRC Forest Estate 2021-2031 Management Plan as:

68.1. To maintain the ability of the land to receive and effectively treat Central Hawke’s Bay wastewater if required

68.2. To maintain the recreational value of the Waipukurau Forest to the Central Hawke’s Bay Community

68.3. To enhance biodiversity values in the Waipukurau, creating connections to habitat along the Tukituki River

68.4. To maximise financial returns from the Forests while not compromising any of the above.

Management

69. Currently, management of the Tangoio Soil Conservation Reserve, HBRC Forests, and Tūtira mānuka plantation is carried out by a Forests and Reserves Officer, in the Open Spaces Team of the Asset Management Group of HBRC.

70. Forest management decisions are made according to HBRC’s standard financial delegations and significance criteria. Detailed management plans for the Tangoio Soil Conservation Reserve and HBRC Forests align with the LTP period and set out forest objectives and policies. The plans have been reviewed and approved by two reputable Hawke‘s Bay foresters as well as the Team Leader Open Spaces and Group Manager, Asset Management.

71. Due to the high complexity of HBRC’s carbon portfolio and the significant costs of calculation errors (both in terms of fines and impacts on decisions), carbon accounting is still contracted to an external consultant. Similarly, harvest in sensitive environments is contracted to harvest managers.

72. A position of both forestry regulator and manager puts HBRC in an unusual situation and entails risks of the regulator being held to account for its own practices, a risk that is greater than that of many other local authorities given the erosion-prone and environmentally-sensitive nature of a large area of its forests. However, this is not an unreasonable expectation and helps HBRC to keep skin in the game of forestry, form solid working relationships with industry, and sustain expertise within the organisation in making decisions and advising on matters relating to forestry.

Discussion

Key Issues

Alternative species

73. HBRC forests contain a wide range of species as shown in Figure 3 below. Though generally alternative species don’t provide the certainty or level of harvest returns of radiata pine, in some situations other priorities, such as aesthetic value and carbon sequestration, have taken precedence. Past replanting decisions, particularly at Waihapua, also reflect Council’s desire to support species diversification within the New Zealand forest industry.


Figure 3: Species mix in TSCR (left) and HBRC Forests (right)

74. The current HBRC Forest Estate Management Plan species selection policy attempts to balance these objectives with managing risk in the returns on investment of ratepayer funds (particularly given the increasing area returning to native) by maintaining radiata pine at around 50% of the commercial area of the estate with the remainder allocated to alternative species. Given the importance of maintaining the sustainability of the TSCR reserve fund and Catchments Fund and the progressively decreasing area of commercial forest, the species selection policy is for 75% radiata pine, once again applied to the commercial area only. This ratio will be revised at the next management plan period (3-yearly to coincide with the LTP period), particularly given the recent high prices for some cypress species.

75. The development of alternative timber species has historically been limited in large part by limited resources spread widely over a variety of species. Recently, leadership in projects such as the Specialty Wood Products Partnership (SWPP), New Zealand Drylands Forest Initiative (NZDFI), and the Cypress Interest Group of the New Zealand Farm Forestry Association has focused effort and resources more effectively behind the most promising species.

76. Small volumes of alternative species have become available for milling recently - Eucalyptus fastigata were situated amongst radiata pine logged at Tangoio, and large Eucalyptus regnans and Juglans nigra (black walnut) will be felled soon in a land clearance exercise, also at Tangoio. In general though, the alternative species are all young and, particularly as alternative species have longer rotation ages than radiata pine, no significant volumes will become available for harvest for at least another 15 years. It is difficult to model financial returns from alternative species given the small volumes traded and subsequent lack of market data.

77. Under current market conditions, the large areas of Eucalyptus fastigata and regnans on the HBRC estate are uneconomic to harvest and are a carbon crop only. Although the timber able to be effectively processed is of reasonable quality, markets for the logs are very limited and prices very low. This is mostly due to very poor recovery of sawn timber from logs (~50%) due to issues with warping, cell collapse and splitting during and after milling, and the time and handling in trying to minimise these issues. It is possible markets for these species may develop in the future as technology in wood biofuels, LVL (laminated veneer lumber), and CLT (cross laminated timber) develops.

78. Species selection objectives and policies are listed in the HBRC Forest Estate Management Plan as:

Objectives

78.1. To grow species appropriate for site and best meeting the Council’s financial and non-financial forest management objectives

78.2. To support well founded species diversification of the New Zealand Forest Estate.

Policy

78.3. Select native species in preference to exotic where they are equally able to achieve the given management objectives.

78.4. Confirm replanting species selection choices prior to harvest based on the most current advice and information available and on the criteria of:

78.4.1. Alignment with primary management objective of the land, ie either erosion control or wastewater treatment, and secondarily recreational access

78.4.2. Site suitability

78.4.3. Financial returns on investment

78.4.4. Contribution to regional economy (regional processing opportunities).

78.4.5. Aesthetics (in high public use areas)

78.4.6. Strategic alignment with industry initiatives and HBRC goals.

Carbon forests and carbon trading

79. Carbon farming was a significant factor in the purchase of the Waihapua, Mahia, Waipukurau and Waipawa Forests and the decision to plant large areas of fast-growing eucalyptus species in them. Apart from the highest erosion susceptibility land at Waihapua, they weren’t envisaged as being permanent forests, and timber production was listed as a complementary objective, though as described previously this will be difficult to achieve.

80. The NZU balance earned in the forests to date and modelled into the future is shown in figure 4 below. The dotted line indicates the decreasing accuracy in predicting NZU balances at extended timelines. At the current price of $76 per NZU, the balance of 146,400 post 1989 NZU and 14,907 pre 1990 NZU is currently worth $12 million.

Chart, line chart

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Figure 4: Forecast HBRC NZU balance to 2083

81. No NZU from the HBRC carbon holding account have been sold to date, but this will potentially change soon with NZU proposed to be sold to finance the recently-created Climate Action Ambassador role.

82. FARS Committee 2 March 2022 asked that a clear carbon policy be formed prior to any NZU sales and staff are currently in the process of doing so.

83. Particularly if carbon continues to increase in value over time (figure 5), the carbon policy, and specifically whether NZU are traded and at what times and volumes, will have a significant impact on returns and therefore decision-making in HBRC’s forest estate.

Figure 5: Change in NZU price over time

84. For example, Table 4 below shows the IRR that would be achieved from the Tūtira mānuka plantation under 3 scenarios and demonstrates the significant impact NZU sales have on the profitability of the plantation.

Table 4: IRR at different NZU Sale Scenarios

Years earned	NZU Price at that time	Scenario 1: First NZU sales in 2022	Scenario 2: NZU sold as earned	Scenario 3: No NZU sales
2018	$23	-	$19,458	-
2019	$25	-	$10,650	-
2022	$82	$169,084	$64,780	-
Total		$169,084	$91,560	-
IRR over 50 years		8%	8%	NA $830,000 loss

Central Hawke’s Bay Eucalyptus regnans

85. Large areas of eucalyptus regnans (approximately 75ha) were planted in the establishment of the Central Hawke’s Bay forests. As a rapidly growing species, E. regnans takes in large volumes of water and nutrients and is well-suited to wastewater irrigation. In addition, stands of healthy E. regnans hold more carbon than any other forest type in the world making them well suited to carbon forestry.

86. However, without irrigation E. regnans isn’t a suitable species for the CHB climate. The rainfall band in its natural range in Tasmania and southern Victoria is 900-1100 mm^{^[5]}, whereas the five year average for Waipukurau is 690mm, with recent lows of 550 mm in 2019 and 530 mm in 2020.

87. Approximately 3.5ha (8%) of the E. regnans in the Waipukurau Forest and 2ha (5%) of the E. regnans in the Waipawa Forest died in the 2019-2020 and 2020-2021 summer droughts. Tree mortality was worst in areas with northern aspects and the poorest soils. These areas have been cleared for replanting in more suitable species, but particularly given the predicted impacts of climate change, more deaths are likely in the future.

88. There are no markets for the trees at this age. Due to their size, a lot of manual handling is involved in processing and carting them for firewood. Firewood merchants these days prefer large diameter logs processed using automated machinery, allowing many cubic metres of wood to be carted and processed efficiently and with little manual labour.

89. A minimum age of 40 years is generally recommended before E. regnans can be sold and milled for timber, in order to better deal with the growth stresses, splitting and warping the species is prone to. Even then, markets for the trees are very limited and if they can be found at all they pay poorly, as described previously.

90. In addition, fire risk in the properties is significant. The E. regnans and other eucalyptus species in the forest are all of high flammability, and even the radiata pine is classed as moderate in this regard. Land on the western boundary of the Waipukurau Forest, in the direction of greatest risk due to the prevailing wind, has been subdivided and is being sold in lifestyle blocks, and the risk of fires being started from human activity and migrating into the property from these properties will increase.

91. The replanting plan for the Waipawa Forest is on hold pending a decision on whether HBRC is going to retain the property or not. If the property is to be sold, staff recommend leaving the cleared areas unplanted given purchasers may not want those areas back in forest. If the property is retained and Council agrees to CHBDC’s request to dispose of biosolids on it, the replanting plan will need to be made with that in mind.

92. Members of the NZ Farm Forestry Association and the Rotary Rivers Pathway Trust (the organisation that has established the mountain bike tracks in the forest) were involved in planning the replanting of the Waipukurau Forest cleared areas. The plan is still being confirmed, but key principles at this point are:

92.1. Radiata pine isn’t the best fit with the recreational values of the forest. Aesthetically, there are better options, and the harvest regime for radiata pine would require largely destroying the approximately $300,000 investment in mountain bike tracks every thirty (30) years. Planting species able to be logged selectively and milled in small local or portable mills for niche markets would minimise this damage and disruption to the recreational use of the property. As the forest is generally easy rolling contour, this method of harvest will be easily achievable.

92.2. Deciduous trees and broad-leaved natives are far less flammable than exotic conifers due to the volumes of water they hold in their leaves and stems over summer periods, and in the Waipukurau Forest this is an important factor given the issues described previously. Poplars in particular have proven to slow wildfires in Australia when planted in dense belts. Oaks are the deciduous species with the most coordinated support behind their genetic and market development.

92.3. While HBRC already has a demonstration forest and trials in the higher rainfall environment of Waihapua (1,267mm 10-year average rainfall), the Waipukurau Forest provides an opportunity to replicate this in a dryland environment, including the use of lower flammability species. This is particularly relevant given the predicted impacts of climate change.

92.4. It is important that native vegetation is planted in the forest. Many of the eucalyptus trees will never provide a saleable log and at present are purely a carbon crop. For the longevity of the forest, there must be adequate native vegetation to take over before the eucalypts become too large and unmanageable. Natives are beginning to regenerate underneath, but this process is slow due to the low rainfall and scarcity of native seed sources and needs to be supported. Native plants and trees would be difficult to establish on the hard bony sites that need replanting and will be planted more strategically in high amenity areas and in the wetter valley bottoms.

Access

93. HBRC is dependent on access across private land for entry to the Mahia and Waihapua Forests, and for log truck access to the Tūtira Forest, and for access to three areas of the Tangoio Soil Conservation Reserve. Only one of these access points is not protected by easement.

94. To log the trees in the Tangoio Soil Conservation Reserve above the Devil’s Elbow, access will need to be gained across a further three properties. One of these access points will be a one-off requirement only as the area will not be replanted in commercial forestry, but easements will be sought for the other two given they will be replanted in commercial trees.

Waipawa Forest

95. The only property in the HBRC portfolio without a clear objective at this point is the Waipawa Forest. It is currently an underutilised and (given the Eucalyptus regnans issues) a low-productivity asset. Given CHBDC’s interest in disposing of biosolids derived from wastewater treatment on the property, a conversation has been initiated with them regarding the long-term future of the site.

Impact on the Community or Council

96. With the exception currently of the Waipawa Forest, the various forest assets managed by HBRC provide a range of significant values to the communities they are situated in, and decisions on their management therefore have the potential to impact significantly on these communities.

97. Staff propose that updates on the forestry assets are provided to Council following the end of every financial year. Harvest reports for the mānuka plantation and any forest that has been logged will generally be available at this time.

98. Decisions of significance will continue to be brought to Council as per Council policy and as has been the case with recent examples such as the Tūtira pine forest replanting plan and the Tangoio and Tūtira pine forest harvesting procurement. At this point in time, the decisions of significance needing to be made are whether to divest the Waipawa Forest and confirmation of HBRC’s carbon trading policy.

Other Council’s experiences

99. Local authorities own or manage 53,282 hectares (2.5 %) of the 2.1 million hectares of commercial forest land in New Zealand for a wide range of objectives (attached). As such, there is ample opportunity to learn from other councils’ experiences as required.

100. Though other Regional Councils have contributed to research into mānuka plantations as a landuse, the Tūtira plantation is the only known Council-owned mānuka plantation in the country.

Next Steps

101. Review of Waipawa Forest to be undertaken to determine optimal use of this asset.

102. Staff will bring a draft carbon trading policy to Council when complete.

103. Staff will report back to Council when the 2022 Tūtira mānuka plantation and pine forest harvest reports are available.

Decision Making Process

104. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that, as this report is for information only, the decision-making provisions do not apply.

Recommendation

That the Corporate and Strategic Committee receives and notes the HBRC Forestry staff report.

Authored by:

Ben Douglas

Forests & Reserves Officer

Russell Engelke

Team Leader Open Spaces

Approved by:

Chris Dolley

Group Manager Asset Management

Attachment/s

1⇩

Forestry tables and figures

[1] Marden, M; Lambie, S; Phillips, C. (2020). Potential effectiveness of low-density plantings of manuka (Leptospermum scoparium) as an erosion mitigation strategy in steeplands, northern Hawke’s Bay, New Zealand. New Zealand Journal of Forestry Science. 50:10. Retrieved from: https://nzjforestryscience.nz/index.php/nzjfs/article/view/82/33

[2] UMF stands for “Unique Manuka Factor” and is a measure of the unique type of antibiotic activity naturally present in Manuka honey

[4] Rotorua Lakes Council. (2014). Rotorua Wastewater Treatment Plant Applications for Resource Consents and Assessment of Environmental Effects Support Document, No. 1. Retrieved from: https://atlas.boprc.govt.nz/api/v1/edms/document/A3028753/content

[5] Williams, B & Besednjak, T. (2007). EM112 Gumeracha Eucalypt Climate Change Trials 2007 Interim Report. Retrieved from:

https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.733.3033&rep=rep1&type=pdf

1 ⇩	HBRIC Statement of financial performance March 2022
2 ⇩	HBRIC Statement of financial position March 2022

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